On Monday, the Chinese e-commerce giant scrambled to contain a sexual assault scandal that has thrown it into the middle of the #MeToo movement that has been slowly taking place in the country. Now, besides being pressured by the country's regulators with the rest of the tech giants, its reputation has been shattered. In an internal letter dated "before dawn", Alibaba's BABA chief executive Daniel Zhang pledged to change the company's culture. A manager who allegedly sexually assaulted an employee has been fired, and that two other executives who failed to act after the incident had resigned. As a result, the company's Hong Kong-listed shares dropped 3%.
Just like its US peer Amazon.com, Inc AMZN, Alibaba is seeing slowed growth due to eased pandemic-related restrictions that encouraged consumers to visit physical stores. After suffering a loss first month after going public, Alibaba missed revenue estimates for the first-quarter fiscal 2022 results before the opening bell on Aug 3rd as e-commerce growth slowed down along with intensifying regulatory pressures. The company missed revenue estimates for the first time in more than two years, but it did outpace earnings estimates.
Last Tuesday, it reported that overall revenue expanded 34% to $31.9 billion but missed estimates due to rising competition from smaller players such as JD.Com JD and Pinduoduo Inc PDD. The core e-commerce business rose 35%, cloud computing revenues grew 29% YoY, followed by digital media and entertainment sector with 15% growth. But despite the increase in sales, adjusted earnings dropped, although they were a bit better than recently lowered analyst estimates from analysts. Net income amounted to about $7 billion, or 45.1 billion yuan as it slipped from last year's 47.6 billion yuan.
In an effort to assure investors, China's largest e-commerce company revealed it will repurchase $15 billion in shares through next year, up from its $10 billion repurchase plan already in place, while disclosing it had repurchased $3.7 billion worth of its US-traded shares since April.
The results come amid an ongoing Chinese regulatory hunt in which Alibaba was not spared. Back in April, Alibaba was charged $2.75 billion for engaging in anti-competitive practices.
Are Competitors Better Protected From Unpredictable Regulatory Pressures?
Chinese and American regulators are pressuring U.S.-listed Chinese stocks, imposing new restrictions. Chinese regulators are urging them to return to Chinese exchanges whereas American regulators are threatening with delisting all foreign companies that don't comply with new auditing standards within the next three years.
Unlike Alibaba who is the leading e-commerce and the top cloud-infrastructure services provider that also operates brick-and-mortar stores, streaming media platforms, and a budding video game business, Baozun BZUN operates behind the scenes. It mainly helps foreign companies establish an online presence in China by setting up their e-commerce websites, managing their marketing campaigns, and fulfilling online orders with its own logistics network. It's generally easier for big companies like Nike NKE to outsource those services to Baozun instead of making their own teams in China. Baozun clearly faces fewer direct regulatory threats, at least in China, than Alibaba because its ecosystem is much smaller and it hasn't been accused of any anti-competitive strategies or investments.
The Alleged Assault Had Exposed "Systematic Holes" In Alibaba's Governance
The victim of the alleged assault came to Alibaba's internal message board and staged a protest in the company cafeteria as her managers didn't take any action. This unfortunate incident comes after another executive sex scandal last year. Alibaba is now entirely under the spotlight with the government scrutinising everything from workplace culture and employee benefits to data security and antitrust violations. Moreover, the prospect of further scrutiny from Chinese regulators looms large.
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